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Social Security, Employee Benefits and the Risk of not Insuring Employees in Mexico

The day to day operations of a labor and employment firm are filled with some very consistent and repetitive inquiries such as social security, worker’s compensation, general insurance, minimum mandated benefits and over all employee costs in Mexico. For employers and international investors, it is essential to point out that full compliance in all abovementioned areas, along with transparency in Mexico is obtainable and surprisingly viable if analyzed and implemented correctly.

In the US for example, when occupational injury or illness arises, employees may receive worker’s compensation benefits to replace lost wages and to help pay for medical expenses. This is just one of those “employee costs” that all employers entertain and that must be factored in to be able to analyze the viability and overall cost of business. Understanding the depth and cost of employer responsibility in terms of mandated benefits and social security is at large, one of the most important elements of hiring employees in Mexico.

Per Mexican law, everything that the employee is entitled too and everything that is binding for employers is centered, handled and paid unto one government institution which is the National Social Security Institute or “IMSS” (Instituto Mexicano del Seguro Social).

It is mandated that all employers must register under the Mexican Social Security Institute which provides governmental full medical care, out-patient, maternity, disability and injury care to all workers registered therewith alongside retirement, pension plans and even day care centers for working mothers. Social Security services are paid for through fees or quotas funded both by employees and employers via withholding which is one of the primary obligations of all employers when disbursing salaries. Other than the obligation to register all workers under IMSS, these social security fees are essential to compliance and workplace stability because they replace workers comp, 401 K and retirement (all other insurance and benefits) whilst allowing employees to have all health, maternity, injury and disability benefits while IMSS pays for wages during medical care or approved absences.

It is important to consider this trade off (a single payment), seeing that there is only one legal social security administrative system, which maintains free of charge medical clinics, hospitals, childcare and eligible services to employees and their families. IMSS also pays for a percentage of an employee’s salary in the event of a job-related accident illness or temporary/permanent disability and grants assistance to beneficiaries in case of a work-related accidents or death.

Having a working knowledge of how much “overhead” this social security cost will bare in relation with the pay roll and how this can help a company is paramount for all investors and employers in Mexico. IMSS being a competent authority to audit and impose fines on employers for non-compliance is also very important to note, as a single levy for not observing employer social security obligations could mean millions in losses alongside compliance issues.

Over all, in time all corporations will appreciate and conclude that compliance with IMSS is less costly and with potential larger benefits for the employer than expected. Actually, expenses related to social security compliance in Mexico and even severance/termination fees will prove to be less costly than in the United States.